Floating charge and mutuality in set-off: post-receivership trading debts stayed company debts, allowing set-off against a pre-existing cross-claim.

A floating charge under a debenture, on its true construction, crystallised over assets in existence when the receiver and manager was appointed but did not automatically fix on fresh trading debts earned afterwards by the receiver as agent of the company. Those post-receivership debts therefore remained beneficially the company's debts, so mutuality was not destroyed. A pre-existing assigned cross-claim could still be set off against the company's claim for those trading debts because the assignment did not alter the underlying mutuality between the parties. The appeal accordingly failed, although the dissent would have treated the new debts as equitably charged in favour of the debenture-holders and denied set-off.

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Issues: (i) Whether debts arising after the appointment of a receiver and manager under a debenture became subject to the debenture-holders' charge so as to destroy mutuality and prevent set-off; (ii) whether the defendants were entitled to set off a pre-existing assigned debt against the company's claim for post-receivership trading debts.

Issue (i): Whether debts arising after the appointment of a receiver and manager under a debenture became subject to the debenture-holders' charge so as to destroy mutuality and prevent set-off.

Analysis: The majority held that, on the true construction of the debenture, the floating charge crystallised into a fixed charge on assets existing at the date of the receiver's appointment, but did not create a fixed charge over fresh debts arising from trading carried on by the receiver as agent of the company. The charging clause, read with the conditions governing the receiver's powers and the application of money received, was treated as providing for collection and application of receipts rather than for an equitable assignment of every new debt as it arose. The existence of the receiver and manager did not, in substance, prevent ordinary commercial dealings from producing debts owing to the company alone.

Conclusion: The post-receivership debts did not become subject to a fixed charge in favour of the debenture-holders so as to exclude set-off.

Issue (ii): Whether the defendants were entitled to set off a pre-existing assigned debt against the company's claim for post-receivership trading debts.

Analysis: The majority held that set-off depended on mutuality of beneficial interest. Since the post-receivership debts belonged beneficially to the company and not to the debenture-holders, and the defendants' cross-claim arose before assignment and remained a debt against the company, the requisite mutuality existed. The assignment of the defendants' cross-claim did not alter that position. The dissenting view treated the new debts as equitably charged to the debenture-holders when they arose, so that mutuality was lacking.

Conclusion: The defendants were entitled to set off the assigned debt against the company's claim.

Final Conclusion: The appeal failed because the majority held that post-receivership trading debts were not withdrawn from the company by the debenture in a way that destroyed mutuality, and the cross-claims could therefore be set off against each other. The dissent would have denied set-off and allowed judgment for the full claim.

Ratio Decidendi: Where a receiver and manager carries on the company's business as agent and the debenture terms provide for collection and application of receipts, post-receivership trading debts are not necessarily fixed in favour of debenture-holders so as to destroy mutuality and bar set-off.

Dissenting Opinion: Sellers L.J. would have allowed the appeal, holding that the debenture had the effect of charging post-receivership debts in equity in favour of the debenture-holders and that mutuality was therefore absent.

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